One Bullish Decade

On March 9, 2009, a global bull market began. A decade—and multitudinous predictions of its demise—later, the bull still seems on solid footing. Its 10-year anniversary, though an arbitrary marker, is a timely reminder of how powerful and resilient bull markets are.

This “bulliversary” milestone does come with a caveat: Both global and US stocks remain below the record highs set before last year’s correction. The MSCI World last registered an all-time high on January 26, 2018, while the S&P 500’s most recent record was September 20.^[i] Though stocks have rebounded significantly, the S&P 500 and MSCI World remain -3.1% and -4.7% below their last highs, respectively.^[ii] We suspect last year’s drop was a correction, which ended around Christmastime, and think it is only a matter of time before both gauges register new highs. Short-term negative volatility could always knock markets again, dragging this out. But we see little fundamental reason to think the bull is over now.  

Presuming that holds true, this bull’s 120-month run is the longest on record—eclipsing the 1990s bull’s 113 months. It is a trivial milestone, but inevitably rekindles the long-running debate: Is the bull long in the tooth and on its last legs, or can it keep on trucking? But in our view, bull markets don’t die from old age. Based on our research and understanding of the stock market, bulls die in one of two ways: what we refer to as “the wall” or “the wallop.” We don’t see either as likely in the here and now, suggesting this old bull should keep running.

The wall refers to the proverbial “Wall of Worry” bulls typically climb. Throughout a bull market, investor sentiment tends to follow a basic track, summed up nicely by this Sir John Templeton quote: “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” Sentiment is extremely dour when bulls begin, with scars from the preceding bear market still fresh. Any scary-sounding story seems far worse than it is, but reality tends to prove these concerns unfounded. Gradually, investors become more and more optimistic, and the bull overcomes each “brick” in this wall—with stocks rising on positive surprise. Eventually, though, investors can get punch drunk on past returns. Sentiment exceeds rational optimism and spills into euphoria. At that point, expectations become consistently too high instead of too low, setting up disappointment. Investors extrapolate positives into perpetuity and overlook trouble signs—setting up a bear market.

The “wallop” refers to a little-noticed, huge negative that destroys trillions of dollars in global GDP. Examples range from a global war (e.g., World War II) to legislative or regulatory changes that carry dire, unexpected consequences (e.g., FAS 157, which produced the wallop that started the last bear market). Real wallops are rare, but financial media warn they lie around every corner. Yet as headlines bang on about the Next Big Wallop™, mostly efficient markets price in the story. That saps the fear’s surprise power and can also reveal reality isn’t as worrisome as initially thought. Recent US/China tariffs and trade war concerns are a prime example. A true global trade war is capable of walloping a bull market. However, today’s situation—in which all implemented and threatened tariffs total only about 0.3% of the IMF’s estimate of global GDP—isn’t near that scale, in our view. False fears like these are actually bricks in the wall of worry—a sign stocks likely have more distance to climb.

Pervasive fears like tariffs, China’s and Europe’s growth slowdown, Brexit and more suggest the bull still has more wall to climb—we don’t see euphoria anywhere. We also don’t see any negatives possessing wallop potential right now. Despite hitting the double-digit year mark, we see no reason why the bull market should end in the foreseeable future.

A stroll down memory lane over the past decade illustrates how far the arguably least-loved bull market in history has come. Go back to 2010 – 2013, when the eurozone sovereign debt crisis triggered a regional recession and bear market. Folks believed Europe’s monetary union was about to collapse, with Greece the first domino. Yet the eurozone is still around today, the economy has expanded since 2013 and Greece has gone from defaulting and fears of it “Grexiting” to successfully returning to sovereign debt markets. That doesn’t mean everything is perfect, but bull markets don’t require perfection to charge higher.  

China fears have had different permutations throughout the years, with most involving some version of an economic “hard landing.” Those concerns have been around since 2011, yet GDP has kept expanding at a fine clip. Growth has decelerated, but it has been a gradual, expected slowdown—not a surprisingly sharp one shocking the world. Reality here has been better than many expected.

Many investors have worried certain politicians and/or their policies would derail the bull over the past 10 years. As a reminder: Our analysis is always politically agnostic, as we don’t believe any politician or political ideology is inherently good or bad for stocks. Thinking otherwise is a blinding bias—dangerous in investing. In America, experts predicted market doom if Donald Trump won the presidency in 2016. Across the Atlantic, the rise of populist politicians, from Greece to Italy, was supposed to usher in radical change—imperiling markets there. None of these projections have played out. Campaign rhetoric and bluster can hit sentiment in the short term, but stocks care about policies, not personalities. Not only do politicians—antiestablishment or no—tend to moderate once in power, gridlocked legislatures across the developed world dampen the likelihood sweeping new laws get passed.

However, just because the bull market is currently the longest running doesn't mean it will last forever. At some point it will end—either because it runs out of wall to climb or a wallop kills it. However, we don't see compelling evidence right now suggesting a bear market looms. Until that changes, the bull can keep climbing, regardless of whatever fun—albeit meaningless—new milestones it hits along the way.